How does group income protection insurance work?

Group income protection insurance is a regular monthly benefit of up to 75% of the workers income paid in the event they are unable to work following an accident or illness. This will cover injuries and illnesses that occur both:

Inside work

Outside work

Group income protection insurance provides employers a device to pay their employees part of their monthly income while they recover for work.

Who can apply?

Group Income Protection Insurance is available for:

Employees that have been offered income protection cover by their employers. This may also include contract workers.

Members of group super funds

Australian residents or visa holders

Resides in Australia and employed for at least 15 hours a week on permanent basis

What are the key features?

Generally, group income protection is like a safety net for employers to help cover for their employees. Features may vary from provider to provider, but there are certain features generic to all group income protection policies.

A variety of options for waiting periods. A waiting period is a time a claimant has to wait before receiving the payment for the benefits. Employers are given the choice how long the waiting period will be after a claim. Payment could begin after 13, 26, 28, 41, 52, or 104 weeks. The trick there is the longer the deferred period is the lower premium you pay.

Benefit payment terms option. This sets the length of time how long an employee can receive the payment for benefits. Most funds offer benefit periods of 2 years, 5 years and to age 70.

Lump sum options. Employees can choose to receive a monthly pay-out or lump sum. This would depend on the need of each member. A lump sum can be useful to finance an employee’s early retirement.

Protection against inflation. Through the escalation option, income protection is protected from inflation. This guarantees that any benefit will increase over time at a fixed rate or in line with the Consumer Price Index (RPI) which could reach a maximum limit of 5%.

Employee Assistance Program. Along with other additional benefits, the Employee Assistance Program or EAP has been added in most health insurance policies to help employees express and deal with their personal problems which could have adverse effects on their overall performance at work. This feature provides short-term counselling, assessment and support to employees.

How does income protection benefit both employees and employers?

Group income protection insurance works both ways for the employers and their employees. When employees know that their employers care for their well-being, they become more productive at work. In turn, increased productivity means bigger profits for the employers. Below are more benefits the employer and the employee have from having group income protection.

Benefits for employers

Benefits for employees

Provides an excellent financial assistance at a modest cost

Guarantees financial aid in the form of income replacement

Encourages good relationship between employer and employee

Assistance and support during rehabilitation period

Gives additional support and counselling without an extra cost

Extra coverage for pension contribution

Tax benefits from contributions

Access to a variety of assistance for the employees and their families

Incorporates coverage of pension and employer’s NI contributions

Continuous medical coverage until retirement with no additional medical proof

Currently own a group policy? How to assess your policy

If you are currently a policy holder with your employers group protection or a policy inside your superannuation fund then it's important to regularly assess your cover. Some key areas to look at:

Benefit period. Think about how long your income protection will be paid out in the event of a claim.

Amount insured. It's a good idea to assess the amount you have covered and if it's enough to cover your households basic needs.

Price relative to a non-group policy with similar benefits. Check out standalone policies that offer the same benefits (e.g. benefit periods and sum insured) and compare their prices to how much you contribute to your group policy.

What factors affect the cost?

There are additional benefits each policy has depending on the insurance company. Typically, the cost of premiums for group policies depend on the employer (as they will decide on a standardised type of cover that's provided.

Will is a personal finance writer for finder.com.au specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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